BlueScope looking up after shutdown

Brokers are growing increasingly positive about
BlueScope Steel
’s prospects for a return to growth following its decision to shutter its loss-making export capacity.

CLSA said on Thursday that even if Australian steel demand remains weak, it forecasts above- consensus earnings for Australia’s biggest steelmaker.

“Our above consensus forecasts capture a return to recessionary lows in housing starts and a structural shift in demand from the manufacturing sector; offset by moderate growth in non-residential construction and participation around the fringes of the resource boom. A scenario analysis highlights that only under the most severe conditions is the valuation no longer compelling," CLSA analyst Scott Hudson said.

Mr Hudson said BlueScope has maintained a strong market presence in the domestic market despite the rapid appreciation in the Australian dollar that has made imported materials more competitive.

“BlueScope remains a competitive supplier to the domestic market, but we are concerned about further appreciation of the A$ and will continue to monitor the market share of local producers for evidence of a change in the competitive landscape," he warned.

“In our view, BSL is no longer trading on valuation fundamentals with the share price currently 46% below our NPV. We anticipate BSL will slowly re-rate over time as the restructure of the domestic business takes effect," Mr Scott said. “Looking beyond FY12, we see growth options through its Asian operations and see this as the next area of positive investor attention."